Everything You Need to Know About Independent Contractors

By Liz Macauley
The Hartford Small Biz Ahead | Originally published March 1, 2022
Updated: February 18, 2022

We’ve all heard of independent contractors, but do you really understand how they’re different from employees at an organization? To start, anyone who is hired on a temporary or project-basis can be an independent contractor.

So, if a small business owner hires an electrician to fix the lights in their retail store, they’d be hiring an independent contractor. On top of this, many self-employed business owners are also independent contractors if they don’t have any other employees.

Some examples of independent contractors can include:

• Dentists
• Electricians
• Lawyers
• Plumbers
• Doctors
• Carpenters

As a small business owner, it’s critical to understand if someone working for your company is an independent contractor. This determines if you need to collect payroll taxes for them or not.

What Is an Independent Contractor?

An independent contractor works for your business but isn’t an employee. This means you won’t have to deduct taxes from their wages. You also won’t need to withhold their Social Security and Medicare taxes. Instead, they’ll need to file their own self-employment taxes.²

It’s also important to note that independent contractors are becoming more common as people continue to pursue new side hustles.

What Is a 1099 Contractor?

A 1099 contractor is the same thing as an independent contractor. The number “1099″ refers to the tax forms that contractors fill out detailing their earnings from the year. The terms “independent contractor” and “1099 contractor” are often used interchangeably.

Examples of an Independent Contractor

Some self-employed professionals that can be independent contractors include:

• Accountants
• Building contractors
• Painters
• Designers
• Website experts

Small business consultants are also generally independent contractors.³

What Is the Difference Between a 1099 Contractor and an Employee?

1099 contractors are a part of the contingent workforce, which also includes:

• Freelancers
• Consultants
• Outsourced or non-permanent workers

Members of this group work on a per-project basis, unlike a small business’s existing employees. Some other differences to be aware of include:

• Employers have a degree of control over the quality of an independent contractor’s work but not the method through which they get the work done. In contrast, employees must follow employers’ directions on how to complete work.
• An independent contractor is responsible for their own equipment, materials and tools — including their working space. An employee receive these from their employer.
• A worker is an employee if they receive benefits like 401(k) contributions. Independent contractors don’t receive these from the projects they perform at other companies.

Is It Better to Hire an Employee or a 1099 Contractor?

Not sure if you should hire another employee or an independent contractor instead? Hiring independent contractors on a per-project basis can be…[MORE]

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To read the entire article byLiz Macauley at The Hartford Small Biz Ahead website , visit: Everything You Need to Know About Independent Contractors